How UBI and a job offer scheme could end poverty—and help the public sector, too

As part of an ambitious overhaul of society, job offers in under-staffed public sector industries could be combined with a universal basic income to lift the most vulnerable out of poverty

February 27, 2019
A staff member serves a cup of coffee to a woman in a nursing home. Photo: PA
A staff member serves a cup of coffee to a woman in a nursing home. Photo: PA

The idea of a universal basic income (UBI) has attracted increasing attention, particularly since the recession. Fear of unemployment due to artificial intelligence and automation, austerity, welfare cuts, and precarious, low wage employment, as well as under-employment (including involuntary part-time work), are all relevant as they increase alongside rapidly rising inequality.

In addition, the manifest failures and injustice of many existing targeted welfare schemes and related sanctions—including the disastrous new “universal credit”—have strongly encouraged the search for a radical alternative approach to welfare.

In the US, a public sector job-guarantee with a ‘living wage’ of $15 per hour or twice the current federal minimum wage is favoured by many progressives, including presidential candidates Bernie Sanders and Elisabeth Warren. But such a generous job-guarantee would disrupt the labour market, forcing many private employers to raise wages and prices, and unleashing very restrictive fiscal and monetary policy to forestall the inflation that would otherwise offset wage hikes. It would also be difficult to include all the currently unpaid home care and other work done mainly by women in such a scheme.

A basic income as a more promising, affordable first step towards urgently-needed reform has recently been developed in detail by Stewart Lansley and Howard Reed in their Final Report for Compass, Basic Income for All. They propose a modest UBI of £60 per week for all working-age adults, with £165 for pensioners and £40 for children.

This would supplement irregular earnings and offer some compensation for all the unpaid work in the home. It would also be added to other income in calculating means-tested welfare measures, the cost of which would then decline. It would double the income of the poorest income decile while reducing the top decile’s income by 6 per cent—a useful step towards greater equality and social justice.

Doing the maths

UBI could be funded by abolishing the personal income tax allowance of £11,850, which mainly benefits higher earners, taxing lower incomes at 15 per cent, and raising existing income tax rates by 3 per cent. Taxing capital gains like other incomes, and reducing widespread tax avoidance by individuals and international corporations, are also obvious reforms, but face strong political opposition.

Moreover, modest UBI cannot raise a single adult living alone above the poverty level of about £10,000. A workless family of two adults and two children would receive £10,400 per year UBI in the Compass scheme, in addition to any other remaining benefits—only half the poverty level for this class of household. Abolishing poverty is impossible with only an affordable UBI.

Furthermore, having meaningful work as well as adequate income is an important part of life satisfaction for most people, while unemployment is a major cause of unhappiness. Current low official unemployment rates ignore the 2 million “discouraged workers” who are inactive but want to work, as well as the underemployed.

Many low pay jobs require unpaid overtime, irregular hours and stressful working conditions, with little or no prospects of promotion or advancement. About 40 per cent of UK workers are in such ‘bad jobs’ with inadequate earnings, graphically described by James Bloodworth in his book Hired after undercover work in several of them.

UBI on its own would obviously not solve the problem of providing decent jobs for all who seek work, and at affordable levels could not raise most unemployed individuals or families above the poverty threshold without major additional means-tested benefits. These are typically withdrawn or ‘tapered’ with rising income at marginal rates of 80 per cent more in some cases—and thus impose a ‘poverty trap’ with negative incentives.

For all these reasons, we have argued that a modest UBI should be complemented by a job offer from local authorities to employ willing applicants. (This contrasts with the prevailing discussion, where almost all authors favour either UBI or a job guarantee and ignore the benefits from combining both.)

Most of the work in the currently understaffed care sector and many other local services is relatively low–skilled and could be paid a minimum wage, perhaps after an apprenticeship, while offering promotion and higher wages with experience as an incentive. Together with modest UBI, this would provide above-poverty income to individuals and families without removing the incentive to look for regular work which offers a greater variety of occupations and career possibilities—and may be better paid. Given the serious and growing shortage of staff in the care sector, as well as the urgent need to invest in public infrastructure, there is no lack of meaningful work opportunities that could be provided with adequate funding and training.

Two million full-time job offers would directly cost £28 billion—only about 11 per cent of total welfare spending. The extra spending and taxes paid by those raised above poverty would offset some of the cost, by the multiplier effect. The net cost will be less than total cuts in welfare under austerity since 2012, which helped to raise child poverty to over 30 per cent in the UK, on which Britain holds the worst record in Western Europe. This will have severe, lifelong adverse consequences for employment, health and happiness for all affected.

A holistic approach

A job offer implies no compulsion—as is sometimes claimed—but should require adequate performance, so it is not an unconditional job guarantee. However, good working conditions and regular, full- or part-time hours under such job offers would mean that private employers must offer at least similar pay and conditions to retain their workers, so common current abuses such as zero hours, excessive pace of work to meet unreasonable targets, or demanding unpaid overtime to undermine hourly minimum wage legislation would no longer be viable. Self-employment as a voluntary choice would also be encouraged by UBI, while job offers could replace involuntary self-employment with inadequate earnings.

Of course, the current crisis in the NHS, with substantially lower funding and staffing compared to many EU countries, as well as decades of neglected public infrastructure investment, also imply an urgent need for substantially greater public spending. A “Green New Deal,” including major investment for rapid transition to a sustainable, low carbon economy, is essential to meet long term climate goals and has been proposed by Democratic Presidential candidates in the US. Disability-related benefits also need to be improved for those unable to work and needing care, and housing benefits should be augmented in view of Britain’s dysfunctional housing and rental market, which requires major long-term investment to overcome current shortages and catch up with European standards.

Thus higher taxes on the highest incomes, which do not reduce growth according to many studies, are essential both to reverse growing inequality and fund increased public spending, as in the more egalitarian Nordic economies which enjoy top rankings for entrepreneurship, happiness and life satisfaction—as George Lakey’s 2016 book Viking Economics argued. Since adequate care services are an essential part of the welfare state, the additional cost of UBI, job offers and expanding services to cope with an ageing population cannot be avoided in the long run.

Felix FitzRoy thanks his daughter Olga for useful discussion which helped inform this article.